The strategic planning gap

& growth strategies

Topic Suggested reading

1.The strategic planning processIntro to the Integrating case study

Chapter 1-2

Case 1 :The ABC Cheese Factory2.Portfolio model

Page 202-209Chapter 3

Case 2 :Abbotsleigh Citrus3. Gap & The growth strategies

Page 209-212Chapter 4

Case 3 :Degrees South4.Five forces model

Page 212-217Chapter 5

Case 4 : A retail meat market Question No 15.Competitive generic strategies

Page 228-237Chapter 6

Case 5 : A retail meat market Question no 26.Competitive market position and related strategies

Page 228-237Chapter 8

Case 6 : A retail meat market Question No 37.Strategic alliance and network

Page 228-237Chapter 9

Exam -

The strategic planning gap

1. The strategic planning gap is really the difference between projected earnings, given future scenarios, if the business makes no changes to its marketing strategies, and the desired earnings over the same time period.

2. The time period should be medium to long-term, i.e., at least 2 to 5 years into the future.

DubaiLehman

The strategic planning gap

Strategic Planning

Gap

Time

Sales profits

Probable result if no growth strategies are used and no changes are made to marketing activities.

Owners and investors’ expectations

Sales orprofit position now

Risk of failure:• capital• strategy

Elements of the strategic planning gap model

1. The downward profit/sales indicator line;2. The upward profit/sales indicator line;3. The gap; 4. Three levels of growth:

1. intensive growth2. integrative growth3. diversification growth.

5. The risk indicator line.

Time

Sales profits

Probable result if no growth strategies are used and no changes are made to marketing activities.

Owners and investors’ expectations

Sales orprofit position now

Risk of failure:• capital

• strategy

Factors affecting sales & profit over time

Macro-environment changes1. demographic2. economic3. social/cultural4. political/legal5. technological6. natural

Micro-environment changes1. competition2. customers3. suppliers4. intermediaries5. publics

Internal changes1. staff/management 2. resource levels3. production capacity/abilities

Progress through the product life cycle

China

JW

Calculating the gap

1. Develop three future scenarios - best case, most likely and worst case.

2. Forecast projected earnings for each scenario over a reasonable time period - 2 to 5 years - if the business makes no real changes to its marketing strategies. Plot these on a graph.

3. Calculate the owners’ expectations for the same time periods, given the circumstances of each scenario. Plot these on the same graph.

4. The resulting difference between the lines is the Strategic planning gap, which is filled using various growth strategies.

Ansoff’s product market growth matrix

And Growth

New

1.Market Penetration

2. Product Development

3. Market Development

Current New

ProductsM

arke

ts Curre

nt

Ne

w

4. RelatedDiversification

Growth

1.Market penetration

Growth in existing product markets by1. increasing market share2. increasing product usage3. increasing the frequency used4. increasing the quantity used5. finding new applications for current users

Present products

Present markets

Growth in sales and/or profit achieved by maximising the possibilities within the scope of the business’s current products and markets, i.e., dig deeper (penetrate) into the existing market potential.

Coca

Limitations of market penetration

1. Label/packaging changes may not appeal to customers.2. Customers may react adversely if they feel they are being ‘tricked’ -

e.g., pack size changes.3. Some strategy options can be easily copied by competitors, so the

competitive advantage is lost. 4. Price reductions may increase sales a little, but may adversely affect

profits.5. Price increases may alienate more price sensitive customers.6. Advertising doesn’t always work and is costly and time consuming to

change.7. Competitors may react or copy any incentives aimed at distributors.

2. Product development

New products

Create new products by:1. adding new product features, product refinements2. expanding the product line3. develop a new generation products4. develop new products in the same product

category for same market

Present markets

Develop new products for existing markets and customers within the current product category.

Nokia

Limitations of product development

1. The market may not accept the new product and this may be reduced by good marketing research, but no new product is 100 per cent guaranteed of success.

2. Competitors may easily copy or improve the new product, so competitive advantage is lost.

3. Market development

Present products

New marketsGrowth by targeting new markets1. geographic based2. customer descriptor based: demographic,

psychographic or behavioural

Market development strategies are designed to target a business’s current products at new market segments.

Flower

Limitations of market development

1. New geographic markets are costly to set up.2. New geographic markets are likely to have different

business and customer characteristics, which may be difficult to learn.

3. Existing competitors in the new market may react aggressively.

4. New customer segments may not respond.

Related diversification growth

1. Occurs when businesses have the opportunity to create new products to target new markets, either or both of which are related to existing product and markets.

2. The business’s existing products need to be adapted, or new versions created in order to attract a new market segment. This is generally a demographic, psychographic or behavioural segment. These adaptations or versions become new products for the business and the new segment’s new markets.

3.

Related diversification growth examples

1. Tupperware was traditionally bought by lower to middle-class suburban women, often mature age. It has been refocused towards middle-upper income women in the 25 – 39 age bracket, using bright colours and introducing a range of Disney-based children’s products.

2. Vanguard Publications created a new magazine, 11o targeted at a segment they call ‘flashpackers’.

Tup

Limitations of related diversification growth

1. The new market may not be attracted to the new product versions.

2. Temporary competitive advantages are likely to be rapidly lost as competitors also produce products to attract the new market.

3. If competitors are better resources, or can avoid ‘teething problems’ that may be experienced by the first business, they may out-compete the originator of the new product/market combination.

Market structure profile gaps

MSP gap category

Source of gap Ways to close gap Intensive growth option

1.Product line gap

Incomplete:1. Size range 2. Versions –

style, colour, flavours etc.,

3. Form range4. Quality range5. Segments

served

1. Expand size range2. Research and

develop new versions

3. Develop new models/forms

4. Offer different quality/price options

5. Develop different offerings for new segments

Product development

Market & product development combined

CarsFuture car

MSP gap category

Source of gap Ways to close gap Intensive growth option

2.Distribution gap

• Exposure e.g., shelf space, store location • Distribution intensity• Geographic coverage

• Improve exposure in existing retailers• New/more outlets• Move into new regional national or international markets

Market penetration

Market development

Airbus 380

MSP gap category

Source of gap Ways to close gap Intensive growth option

3.Usage gap

1. Frequency of use

2. Quantity used

3. Other brand users

4. Non-users

1. Encourage non-users2. Encourage increased

frequency of use3. Encourage quantity

used4. Promote new uses5. Promote to new

1. demographic,2. psychographic or3. behavioural

segments6. Introduce new product

lines

Market penetration Market development

Product development

MSP gap category

Source of gap Ways to close gap Intensive growth option

4.Competitive gap

1. Competitors’ customers

2. Substitutes customers

1. Persuade competitors’ customers to switch

2. Persuade substitute customers to switch

Market penetration &/or product development

Integrative growth

1. Backward - acquiring suppliers;2. Forward - acquiring resellers (wholesalers or retailers);3. Horizontal - acquiring competitors.

Increasing sales and or profitability through either establishing, acquiring or forming strategicalliances with complementary businesses within the current industry or industries connected at either side of the supply chain.

Benefits of forward or backward integration

1. Reduced costs of inputs or distribution,2. Can reduce other costs such as transport,3. Consistent quality and supply of important inputs,4. Allows access to distribution channels,5. Creates barriers to entry, 6. Allows specialisation and can lead to core competency

competitive advantages,7. Provides additional profit potential from integrated

business’s other activities.

24

Limits of integrative growth1. Considerable capital and other resources are required. 2. Additional capacity, infrastructure and staffing may be required

throughout the rest of the business to allow absorption of the integrated business.

3. Loss of capital resources and credibility if the bid fails.4. Difficulty in mastering the new business, spreading the company’s

resources too thinly across the diverse operations. 5. Commitment to the integrated business may limit the flexibility to

develop new products.6. Loss of sales if customers react adversely to the takeover and

remove their patronage. 7. Legal ramifications, possible ACCC intervention8. Bankruptcy in the extreme instance, where the business being

taken over is less than it appears.

Diversification growth

Diversification growth

1. Concentric - new, related businesses that add technical or marketing synergy.

2. Horizontal - new, unrelated businesses that will appeal to existing customers.

3. Conglomerate - new, unrelated businesses attracting new customers i.e., something completely different.

Increasing sales and or profitability through either establishing or acquiring businesses outside the current industry

Asimo

Limitations of diversification growth

1. Capital risk - diversification requires considerable setup or purchase capital. If the new business fails, it may endanger the entire company.

2. Risk of failure - the company may not be able to cope with the added demands of the new business. As a result, the new business may fail, and at the same time lose market share and competitive effectiveness in the core business.

3. Customer reaction against the acquisition - depending on how well the acquisition is publicised, there may be a consumer backlash.